Category Archives: Getting Started

A 401k is a tax-advantaged retirement account sponsored by an employer. The tax implications differ based on whether the 401k plan is a “traditional” plan or a “Roth 401k”. When not otherwise stated, most people refer to traditional 401ks as simply a “401k”, as Roth 401ks are newer and less common.

A traditional 401k allows an employee to save for their retirement using pre-tax money – thereby reducing their taxable income in addition to putting money aside for retirement. The money is taxed when withdrawals are made from the account. Using this type of plan, you are deferring your taxes until retirement.

The great next step to take is to start automating your financial life. You should try to set up auto-bill payments on everything you can and set up automatic transfers on savings. You’ll have the peace of mind of knowing that you won’t miss any payments or get charged late fees, and that you can take a vacation or a long weekend and not worry about whether you paid the mortgage or the credit card bill.

Now that you’ve got a handle on your month to month expenses and can start projecting out your cash flow, that will allow you to funnel the savings to increase your net worth (or in this case decrease your net liability) – and let your money work for you.

In our previous installment we discussed tracking your finances to get an accurate picture of your cash flow, expenses, income and investments. This gives us a great starting point for our next step: Budgeting.